WEBVTT - Surveillance: No Reason To Stop Hiking, Zentner Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.000 Bloomberg dot Com, and of course on the Bloomberg. The 0:00:28.160 --> 0:00:31.440 history of counting the beans of any economy starts with 0:00:31.560 --> 0:00:35.199 Leon Thief and Tenberg and back around the vicinity of 0:00:35.240 --> 0:00:38.159 World War Two on. From that was a giant of 0:00:38.200 --> 0:00:42.800 economics of Pennsylvania, Lawrence Klein. He's the one that invented 0:00:43.159 --> 0:00:47.240 how we figure out what the U. S economy is doing. 0:00:47.280 --> 0:00:50.800 He was the first doctoral candidate of the giant, Paul Samuelson. 0:00:51.280 --> 0:00:54.680 It devolves down many years later to the blue Chip 0:00:54.800 --> 0:01:00.640 Award Allen Zennor. Morgan Stanley did something extraordinary, put together 0:01:00.720 --> 0:01:04.000 four years of data at Morgan Stanley and did it 0:01:04.080 --> 0:01:09.360 with the smallest standard error in twenty years. Now joining us, 0:01:09.400 --> 0:01:12.800 she walks on water from Morgan Stanley. How did you 0:01:12.920 --> 0:01:16.000 do it? What? What do you do to walk on water? Thanks? Tom. 0:01:16.040 --> 0:01:18.680 I think part of it is when you're in a 0:01:18.760 --> 0:01:22.240 large organization like Morgan Stanley, you have the benefit of 0:01:22.319 --> 0:01:26.600 global strategists covering every asset class of global economists in 0:01:26.720 --> 0:01:30.040 every region and coming together in that mind sharing and 0:01:30.120 --> 0:01:33.560 being sure that all those beans at up is part 0:01:33.560 --> 0:01:36.600 of the process that helps what we call keeping it honest? 0:01:36.680 --> 0:01:38.959 Did I and to Jim Garman, and can I say 0:01:39.000 --> 0:01:41.279 this and tell me if I'm wrong? And what Steve 0:01:41.360 --> 0:01:44.320 Roach wrought with Richard Burney years ago was you people 0:01:44.480 --> 0:01:47.160 argue like I mean, it goes back and forth. It's 0:01:47.160 --> 0:01:51.840 a very constructively argumentative process. And it is so it is, Yeah, 0:01:51.880 --> 0:01:54.560 and I would describe it as constructive. I mean, sometimes 0:01:54.560 --> 0:01:57.800 it can feel like arguing, but it's it's feedback. It's 0:01:57.840 --> 0:02:00.800 pushed back. And that's really important because a is uh. 0:02:00.840 --> 0:02:03.760 You take it, you listen to it, You make sure 0:02:03.800 --> 0:02:05.560 that you're looking at it in the way that this 0:02:05.600 --> 0:02:08.120 person is presenting to you. And so at least when 0:02:08.120 --> 0:02:10.560 you go out with a forecast, you go out with 0:02:10.639 --> 0:02:13.320 extremely strong conviction. I never could have stuck to our 0:02:13.520 --> 0:02:15.960 one hype call in twenty fifteen or one hYP call 0:02:16.000 --> 0:02:20.760 in tween um if I didn't have that debate to 0:02:20.840 --> 0:02:24.320 be darn sure that I felt convicted about that view. 0:02:27.080 --> 0:02:30.080 Do people actually the first of all, congratulations on the 0:02:30.080 --> 0:02:33.320 award but do people um debate enough? So maybe in 0:02:33.320 --> 0:02:36.560 your organization they do. But are people kind of vocal 0:02:37.080 --> 0:02:41.079 um our policymakers vocal enough and do they exchange views enough? Well? 0:02:41.120 --> 0:02:43.760 I think it's a it's a is an absolutely great question. 0:02:43.800 --> 0:02:45.440 I mean, if you talk to Don Cone, the former 0:02:45.560 --> 0:02:48.520 vice chair of the f O m C, uh, you know, 0:02:49.120 --> 0:02:51.160 he is one of those that will lament over the 0:02:51.240 --> 0:02:53.920 day that the Sunshine Act was put in place where 0:02:53.919 --> 0:02:57.079 they released transcripts with only a five year lag Now 0:02:57.160 --> 0:03:00.360 five years sounds like a lot um, but five years. 0:03:00.760 --> 0:03:04.160 Most board governors have fourteen year terms. Uh. And so 0:03:04.200 --> 0:03:06.560 he said, after that was put in place, what had 0:03:06.600 --> 0:03:10.160 been very open, robust debate at the table in the 0:03:10.200 --> 0:03:12.120 boardroom at the f O m C was everyone would 0:03:12.120 --> 0:03:14.480 come in with prepared marks and you would go around 0:03:14.480 --> 0:03:16.760 the table and read your prepared marks on how you 0:03:16.800 --> 0:03:19.919 felt about the economy and monetary policy and then say next, 0:03:19.960 --> 0:03:21.680 and the next person would go on. And it really 0:03:21.720 --> 0:03:26.959 tamped down open debate and discussion at those meetings. That said. Uh, 0:03:27.040 --> 0:03:29.760 something that certainly Cherry Yelling stuck to when she was 0:03:31.320 --> 0:03:32.799 ahead of the f O m C was that she 0:03:32.840 --> 0:03:37.120 would have those conversations offline ahead of time before the 0:03:37.160 --> 0:03:40.840 meeting by phone. Um so that those debates did not 0:03:40.920 --> 0:03:43.800 take place when where the transcripts would pick them up. 0:03:44.160 --> 0:03:46.200 Um So, I don't think it tamped it down completely. 0:03:46.280 --> 0:03:48.600 But um yeah, much of it plays out on the 0:03:48.800 --> 0:03:51.560 on the global stage as they're speaking publicly now whereas 0:03:51.600 --> 0:03:54.120 it was never that way before. But but if you 0:03:54.160 --> 0:03:55.920 look at the bo E, it's the Bank of England, 0:03:55.960 --> 0:03:58.040 it's very different to what, of course, you know, how 0:03:58.040 --> 0:04:00.480 the FED does it. It's um is there a right 0:04:00.560 --> 0:04:02.600 or wrong way? And and does that go back to 0:04:02.640 --> 0:04:06.560 just market functioning. If you have too many transparent and 0:04:06.760 --> 0:04:09.760 you know, open debates in the public, do you have 0:04:09.760 --> 0:04:13.640 a higher chance of the market miscommunicating on misunderstanding. Yes, 0:04:13.720 --> 0:04:16.320 I think I think there is that that chance all right, 0:04:16.400 --> 0:04:19.560 because you've got many voices. I remember the the common 0:04:19.600 --> 0:04:22.920 complaint from clients of ours. After Bernanke took over the FED, 0:04:22.960 --> 0:04:25.839 the first truly academic leader of the FED, and he 0:04:25.920 --> 0:04:29.040 instilled his a blue sky thinking where everyone had a say, 0:04:29.080 --> 0:04:31.960 and he encouraged everyone to speak publicly. You know that 0:04:32.120 --> 0:04:34.800 certainly men, especially if I traveled outside of the US, 0:04:34.839 --> 0:04:36.800 clients would say, who in the heck? Do I listen 0:04:36.839 --> 0:04:38.800 to I used only listen to one man. Now they 0:04:41.080 --> 0:04:43.400 let's listen to one man roller tape if you would. 0:04:43.480 --> 0:04:46.760 Right now, here's the president, a central banker. My biggest 0:04:46.880 --> 0:04:51.360 threat is the FED because the FED is raising rates 0:04:51.480 --> 0:04:54.800 too fast and it's independent. So I don't speak to him. 0:04:54.839 --> 0:04:57.120 But I'm not happy with what he's doing because it's 0:04:57.160 --> 0:05:00.800 going to fist the president United States. Trish rig And 0:05:00.920 --> 0:05:02.839 dashing out with their new show over at Fox. But 0:05:02.880 --> 0:05:05.080 it's good to see that ell and there's the there's 0:05:05.120 --> 0:05:08.440 the president right now threatening FED independence. Everybody agrees on 0:05:08.480 --> 0:05:10.800 this as well. Let's back up to the call that 0:05:10.880 --> 0:05:12.960 made you famous, which you have the courage to go 0:05:13.000 --> 0:05:16.440 out and say no, it'll be slower. Bring that call 0:05:16.600 --> 0:05:19.279 up to date, and what a FED call into two 0:05:19.320 --> 0:05:22.240 thousand nineteen looks at. Do you still have a house 0:05:22.600 --> 0:05:26.000 cautious call? Yeah, I think compared to consensus, we're still 0:05:26.760 --> 0:05:30.840 on the more cautious side. Um. Absolutely no reason for 0:05:30.880 --> 0:05:34.000 them to stop hiking right now, and they are completely 0:05:34.120 --> 0:05:37.960 convicted around this next year. The butt is that going 0:05:38.000 --> 0:05:40.840 in the next year, they're completely divided between do they 0:05:40.880 --> 0:05:43.479 deliver two, three, or four hikes? And that's because the 0:05:43.560 --> 0:05:46.400 risks have risen as we go into next year. Now, 0:05:46.400 --> 0:05:49.520 they're upside risk of financial conditions stay easy, they're downside 0:05:49.640 --> 0:05:54.120 risk of trade e M other international spillovers. We're talking 0:05:54.120 --> 0:05:57.719 about bregsit today. UH. You know those are are very 0:05:57.760 --> 0:06:00.720 real downside risk to the outlook as well. UH. And 0:06:00.800 --> 0:06:03.960 so I think we should recognize that while the median 0:06:04.320 --> 0:06:07.520 dot UH is at three hikes for next year, for 0:06:07.560 --> 0:06:10.160 the f MC, it's it's not as hard dot as 0:06:10.200 --> 0:06:13.480 I would call it. Right, They're completely divided. Uh. And 0:06:13.520 --> 0:06:15.280 so I don't expect them to have any more clear 0:06:15.400 --> 0:06:17.800 clarity by the December meeting on how many times they 0:06:17.839 --> 0:06:20.240 should really hike next year. We think they will hike 0:06:20.279 --> 0:06:22.760 twice through June. We think by the time they come 0:06:22.760 --> 0:06:26.040 into that September meeting to debate whether they should hike 0:06:26.040 --> 0:06:28.920 again or not, the shape of growth UH, if our 0:06:28.960 --> 0:06:32.239 forecasts hold true, will show that the economy is slowing 0:06:32.279 --> 0:06:34.240 back towards two percent. This is the other side of 0:06:34.279 --> 0:06:37.880 fiscal stimulus when that stimulus fades, uh, and that that's 0:06:37.880 --> 0:06:39.960 gonna be evidence that they must be around neutral. And 0:06:39.960 --> 0:06:42.279 then enough of them will say let's pause here and 0:06:42.320 --> 0:06:44.839 take a look around before deciding whether we need to 0:06:44.880 --> 0:06:47.360 be restrictive. That's how we think it will play out. 0:06:47.400 --> 0:06:50.000 That is less than what consensus is is thinking though 0:06:50.040 --> 0:06:53.800 for hikes next year. Alright, thanks so much. Ellen sent there. 0:06:53.839 --> 0:06:59.839 They're off. Morgan Stan joining us now the former Ambassador 0:07:00.120 --> 0:07:03.040 of the United States to Israel, Martin Indick, who has 0:07:03.200 --> 0:07:07.600 had an exceptionally productive career in foreign policy and service 0:07:08.040 --> 0:07:10.840 to our National Security Council, working at Brookings and now 0:07:11.280 --> 0:07:15.240 with a Council on Foreign Relations. Ambassador, we are thrilled 0:07:15.280 --> 0:07:19.120 to have you with us today. What would you expect 0:07:19.400 --> 0:07:23.720 Mr Urwan will do after Riad and after the Secretary's 0:07:23.880 --> 0:07:29.600 visit to Anchor? Oh, what is next for Turkey? Welcome morning, Tom, 0:07:29.640 --> 0:07:31.680 Thanks very much for having me on the program. U 0:07:33.000 --> 0:07:37.200 Urdwan is in the bazaar and he has some important 0:07:37.200 --> 0:07:40.520 good to sell. He's trickling out to the press. The 0:07:40.520 --> 0:07:44.560 Wall Street Journal has details of morning gruesome details of 0:07:44.800 --> 0:07:48.840 the audio recordings that are in the Turkish government's possession. 0:07:49.560 --> 0:07:53.000 What is he looking for is anybody's guests. But but 0:07:53.200 --> 0:07:55.800 you would know as well as I that the Turkish 0:07:55.840 --> 0:07:59.920 lira has been struggling, that the Turkish economy is in trouble. 0:08:00.080 --> 0:08:05.080 The Trump double the tariffs on Turkeys steel, and so 0:08:06.160 --> 0:08:09.160 I think he's looking for relief in all of these 0:08:09.200 --> 0:08:15.160 respects from some Saudi perhaps Saudi financial support, some relief 0:08:15.280 --> 0:08:18.480 from Trump. After all, he released the evangelical pasta the 0:08:18.520 --> 0:08:22.360 Trump was hoping for right before the midterm elections here, 0:08:23.040 --> 0:08:30.000 so he's positioned himself very well to uh get some payoffs. Ambassador. 0:08:30.080 --> 0:08:31.720 One of the great things we've seen here is the 0:08:31.840 --> 0:08:35.480 use of sanctions. Jack Lewis with yesterday the former Secretary 0:08:35.480 --> 0:08:40.120 of Treasury talking about the non efficacy of sanctions. What 0:08:40.200 --> 0:08:44.000 does Martin Index think of the use of sanctions by 0:08:44.040 --> 0:08:49.439 this administration or frankly by other nations as well, well? 0:08:49.880 --> 0:08:55.920 Uh In, In general, sanctions have become more effective, uh 0:08:56.120 --> 0:09:01.280 more recently because the Treasury, particularly under Jack lu was 0:09:01.400 --> 0:09:06.560 quite quite effective in tightening the financial sanctions. Because the 0:09:06.640 --> 0:09:12.680 United States dominates the financial factor, particularly issues entertainments, it 0:09:12.840 --> 0:09:18.600 can hurt businesses that that ignore American sanctions. And so 0:09:18.960 --> 0:09:22.640 I think they've become effect more effective over time. Now 0:09:22.679 --> 0:09:25.360 we're going to have an early test case of that 0:09:25.480 --> 0:09:31.000 proposition on November four when the United States imposes reimposes 0:09:31.040 --> 0:09:36.040 oil sanctions on Iran, and we will see how many 0:09:36.120 --> 0:09:40.920 countries decide to find alternative sources, and then the question 0:09:40.960 --> 0:09:44.600 of courses where they can find alternative sources of reasonable prices. 0:09:44.920 --> 0:09:47.280 The big ones to watch China and India because they're 0:09:47.320 --> 0:09:53.920 the biggest importers of oil from Iran. But this crisis 0:09:53.960 --> 0:09:58.600 with Saudi Arabia comes at a moment when the efficacy 0:09:59.160 --> 0:10:03.439 are those actions will depend on Saudi Arabia making up 0:10:03.480 --> 0:10:07.520 the shortage in supply that comes from taking Iranian oil 0:10:07.559 --> 0:10:11.320 off the markets. If the Assaudis don't do that, then 0:10:11.360 --> 0:10:14.400 the price of war is going to spike, not only 0:10:14.480 --> 0:10:19.320 giving the Saudis a revenue win for but also helping 0:10:19.360 --> 0:10:22.400 the Iranians because they'll be able to discount their royal 0:10:22.520 --> 0:10:25.800 significantly and still be able to sell it in those circumstances. 0:10:25.800 --> 0:10:29.679 So Martin, essentially the approach towards Iran does it complicate 0:10:29.800 --> 0:10:33.160 the United States ability to confront Saudi Arabia, even if 0:10:33.160 --> 0:10:38.320 they wanted to completely. It's it's the thing that we 0:10:38.520 --> 0:10:41.520 will always need to take into account here is that 0:10:41.679 --> 0:10:45.720 Saudi Arabia, together with Israel, are the two pillars of 0:10:46.200 --> 0:10:52.880 Trump's anti Iranian policy. They are critical partners in this 0:10:53.000 --> 0:10:58.000 effort um not normally partners, but Saudi Arabia and Israel 0:10:58.080 --> 0:11:04.040 have a common concern about Iranian hegemonic efforts in the region. 0:11:04.200 --> 0:11:08.520 So right at the moment when Trump is trying to 0:11:08.960 --> 0:11:14.120 impose maximum pressure on the Iranians, Saudi Arabia has gone wobbly, 0:11:15.040 --> 0:11:19.280 and there's likely to be a continuing kind of crisis 0:11:19.360 --> 0:11:22.680 between the United States and Saudi Arabia, not because of Trump, 0:11:22.720 --> 0:11:26.440 but because the Senator of the United States is really 0:11:26.559 --> 0:11:31.000 upset with what the Crown Tranter Saudi Arabia is alleged 0:11:31.040 --> 0:11:35.760 to have done with this American resident journalist. And and 0:11:35.840 --> 0:11:41.600 so this is a train which is heading for a 0:11:41.679 --> 0:11:44.560 train crash, and it's very hard for Trump and Secretary 0:11:44.559 --> 0:11:46.640 of State Pompeo to put the brakes on it. So 0:11:46.679 --> 0:11:48.720 one beast, I would love it if for our audience 0:11:48.760 --> 0:11:52.040 you could lift the lid on how international diplomacy works 0:11:52.160 --> 0:11:54.240 at a time like this. All we have to go 0:11:54.280 --> 0:11:56.679 on right now is the official line from the Secretary 0:11:56.720 --> 0:12:00.559 of State Mr. Pompeo, and anything that he says releases 0:12:00.600 --> 0:12:04.199 about conversations with Saudi Arabia. What's happening in the background 0:12:04.600 --> 0:12:07.640 right now with the officials from Turkey, Saudi Arabia, the 0:12:07.679 --> 0:12:09.559 United States tell us what we don't know. How does 0:12:09.600 --> 0:12:15.080 this work the industry of diplomacy right, So, so what 0:12:15.200 --> 0:12:19.120 you saw was the quick dispatch of Pompeio first of 0:12:19.160 --> 0:12:23.199 all to read and then to anchor. That tells us 0:12:24.520 --> 0:12:27.960 that he is trying to put this crisis back in 0:12:28.000 --> 0:12:32.640 the box by working out understandings with the Crown Prince 0:12:32.679 --> 0:12:36.600 of Saudi Arabia and the President of Turkey. That's the 0:12:36.720 --> 0:12:41.200 heart of his mission. It is not made easier as 0:12:41.320 --> 0:12:45.040 usual by by President Trump, who has no discipline in 0:12:45.080 --> 0:12:48.880 this matter. He should be off the tweet waves, that 0:12:48.920 --> 0:12:53.120 he should be off the airways so that Pompeo can 0:12:53.160 --> 0:12:56.680 try to do his job and try to put together 0:12:56.720 --> 0:13:00.040 what he calls for, which is publicly which is a 0:13:00.200 --> 0:13:04.040 thorough investigation on the one hand, and the Saudis have 0:13:04.040 --> 0:13:06.160 committed to that, and on the other hand, to try 0:13:06.160 --> 0:13:10.120 and get the Turks to stop leaking to the press, 0:13:10.200 --> 0:13:14.480 which undermines the whole effort. Mr Ambassador, you have stated 0:13:14.559 --> 0:13:18.000 that this is the first real crisis that Mr Trump faces. 0:13:18.960 --> 0:13:21.920 What does his team need to do to explain to 0:13:22.000 --> 0:13:27.320 him this is the real, first crisis that he faces. Well, 0:13:27.360 --> 0:13:30.680 I think they need to walk him through the way 0:13:30.679 --> 0:13:35.240 in which this can unravel his whole strategy towards Iran 0:13:36.160 --> 0:13:41.079 and as well as cause cause turmoil in the oil markets, 0:13:42.480 --> 0:13:46.200 especially if if there's a challenge to the Crown Prince 0:13:46.240 --> 0:13:50.679 of Saudi Arabia's leadership from other royals in the family 0:13:50.720 --> 0:13:54.720 in Saudi Arabia. They need to make him understand the 0:13:54.840 --> 0:13:59.480 gravity of the situation and therefore the importance of discipline, 0:14:00.080 --> 0:14:05.800 thing that he seems incapable of holding. Two because in 0:14:05.840 --> 0:14:10.320 a crisis, every message has to be carefully controlled. This 0:14:10.440 --> 0:14:15.520 is not about a mid Ton Elections are about getting 0:14:15.880 --> 0:14:22.440 a judge confront. It's it's about uh international consequences in 0:14:22.480 --> 0:14:25.640 which things can spin out of control quite easily. Ambassador, 0:14:25.760 --> 0:14:27.680 thank you so much. Martin Indek with the Council and 0:14:27.760 --> 0:14:35.160 Foreign Relations, the former United States Ambassador to Israel. I'm 0:14:35.200 --> 0:14:37.880 so excited our guest. I'm gonna let you bring him 0:14:37.880 --> 0:14:40.520 in because he's incredible with finance. He has one of 0:14:40.520 --> 0:14:44.280 the ten greatest tweets ever on uber rides It's ever 0:14:44.280 --> 0:14:47.400 in New York City. Was clearly drinking whiskey and refused 0:14:47.480 --> 0:14:49.720 to share. He's the only one who gets to drown 0:14:49.800 --> 0:14:52.560 out his depression on a Wednesday morning. That's one of 0:14:52.560 --> 0:14:57.720 the ten best tweets ever. Somebody keeps track of this stuff. Interestingly, 0:14:59.040 --> 0:15:01.640 I don't rank him, No, the article ranked him for him. 0:15:01.840 --> 0:15:04.760 There's some hilarious ones. Joe Nevington joins the snap blombog 0:15:04.800 --> 0:15:07.720 intelligence credit and strategy analysts. Do you have a word? 0:15:07.760 --> 0:15:11.800 Super nightmare? Now everything is always pleasant and happy in 0:15:11.840 --> 0:15:19.240 an ubercar. Let's talk about it. Come to market. Tell 0:15:19.280 --> 0:15:21.360 me what they would come into market with, what they 0:15:21.440 --> 0:15:25.040 upsize it to, and just how big the order book is? Sure, Yeah, 0:15:25.040 --> 0:15:27.040 I know it's a big it's a big deal. They came. 0:15:27.400 --> 0:15:32.440 They're issuing two bonds, a five year and an eight year. 0:15:32.840 --> 0:15:35.120 Looks like the five years and being priced at seven 0:15:35.120 --> 0:15:39.360 and a half percent and the eight year at eight percent, 0:15:39.800 --> 0:15:42.760 and that to me looks uh. Particularly the eight year 0:15:42.800 --> 0:15:46.960 looks tight relative topic year. That's like high yield junk 0:15:47.040 --> 0:15:49.560 junk junk, right, it is junk junk junk. It's it's 0:15:49.600 --> 0:15:53.480 it's expected to get junk junk junk ratings B minus 0:15:53.560 --> 0:15:55.760 and be three at Moody's. What does that mean to 0:15:55.840 --> 0:15:58.480 the two mere mortals like me that don't memorize are 0:15:58.840 --> 0:16:04.360 below triple A. Sure, it means that junk. It means 0:16:04.400 --> 0:16:09.640 that it's one notch slightly higher than the triple C category, 0:16:09.840 --> 0:16:12.080 which is viewed as having a one in three chance 0:16:12.160 --> 0:16:16.000 of bank bankruptcy within a year. Let me stop your folks. 0:16:16.000 --> 0:16:19.120 What you just heard from Mr Levinson is so important, John, 0:16:19.760 --> 0:16:24.360 Uber is rated one notch above triple C, and yet 0:16:24.400 --> 0:16:27.520 it's the greatest company since time began. We have very 0:16:27.760 --> 0:16:31.080 believe I've never heard this. But what I think is 0:16:31.120 --> 0:16:33.120 interesting about this if we say this from Netflix, and 0:16:33.160 --> 0:16:35.520 we saw this from Testa last year as well, you 0:16:35.560 --> 0:16:38.880 can have the attractiveness of the equity somehow reflected in 0:16:38.920 --> 0:16:41.280 the debt, which makes no sense because the upside is 0:16:41.320 --> 0:16:42.960 going to be in the equity and not in the debt. 0:16:43.200 --> 0:16:46.040 But for some reason, the attractiveness of taking a slice 0:16:46.040 --> 0:16:49.240 of equity turns up in the bond market. Why does 0:16:49.280 --> 0:16:52.960 that happen? John? Why is that happening? It happens all 0:16:52.960 --> 0:16:55.160 the time, John. I you know, like as a young 0:16:55.240 --> 0:16:57.920 credit analyst years and years ago. You know, if we 0:16:57.960 --> 0:17:00.000 go back like twenty years, one of the first job 0:17:00.160 --> 0:17:02.800 that I looked at was long term capital management, and 0:17:02.840 --> 0:17:05.520 it was the same exact worked out that worked out 0:17:05.560 --> 0:17:07.760 really well. Luckily for us, we weren't involved in it, 0:17:08.160 --> 0:17:11.000 but it's the same thing. People see the growth and 0:17:11.080 --> 0:17:13.960 the opportunity and they failed to look at the risks, 0:17:14.000 --> 0:17:15.879 and that's what credit is supposed to be about. So 0:17:15.960 --> 0:17:18.640 quality is really interesting to me right now. High yield 0:17:18.720 --> 0:17:19.960 and I don't know if you saw this this morning, 0:17:19.960 --> 0:17:23.760 Tom JP Morgan pointing out junk bond issuance is on 0:17:23.840 --> 0:17:26.399 course to be the lowest this year since two thousand 0:17:26.440 --> 0:17:29.600 and nine. It's basically going to come in a hundred 0:17:29.640 --> 0:17:31.880 and fifty five billion dollars yet to date so far, 0:17:32.000 --> 0:17:34.639 and that's really important. Supply shortage in this space and 0:17:34.760 --> 0:17:39.399 the seven percent paper, Where do they pay that interest coupon? 0:17:39.480 --> 0:17:41.919 When you clip your Uber coupon in the back of 0:17:41.960 --> 0:17:45.080 your lift vehicle and mail off the coupon or take 0:17:45.119 --> 0:17:48.080 it down to the broker, it just comes out of 0:17:48.600 --> 0:17:51.600 cash on the balance sheet, right it does, because if 0:17:51.600 --> 0:17:54.240 you look at the data that the Wall Street Journal has, 0:17:54.240 --> 0:17:58.080 they're saying that in the company generates significantly negative even 0:17:58.080 --> 0:18:01.400 of margins, so it's not generating new profit, so it's 0:18:01.440 --> 0:18:05.360 just draining the cash that is buying this beautiful. I mean, 0:18:05.400 --> 0:18:11.600 are long only institutional retirement you know widow portfolios buying 0:18:11.840 --> 0:18:15.359 Uber at seven percent coupon? Well that it is a 0:18:15.359 --> 0:18:18.320 private placement, so I hope it's not because there's no 0:18:18.400 --> 0:18:20.880 liquidity in the bonds. Once you have a private placement, 0:18:20.920 --> 0:18:24.040 it becomes a much tougher issue to to trade, which 0:18:24.040 --> 0:18:28.200 actually makes things like Tesla, which the bond is fifteen 0:18:28.200 --> 0:18:32.200 points below its initial pricing, UH, much more interesting, which 0:18:32.240 --> 0:18:35.399 also yields the same yield as the as the Uber bond. 0:18:35.600 --> 0:18:37.880 What does Suber look like a night? Yes? And would 0:18:37.920 --> 0:18:39.480 you be willing to hold a night yet? Now through 0:18:39.520 --> 0:18:42.919 to maturity? But with ye Seriously, the point here, Joel, 0:18:43.200 --> 0:18:46.080 this is a great conversation is it's a private transaction. 0:18:46.800 --> 0:18:48.920 That's the really. I mean, how many people will buy 0:18:48.960 --> 0:18:52.680 this piece? Is it like for people for sovereign wealth funds? Well, 0:18:52.720 --> 0:18:56.439 it's oversubscribed, so somebody's buying it. I just you know, again, 0:18:57.520 --> 0:19:01.040 if I go back to my history, UH, portfolio manager 0:19:01.119 --> 0:19:02.880 that I worked with said, if you're not getting paid 0:19:02.880 --> 0:19:04.480 to take the risk, why are you doing it? And 0:19:04.520 --> 0:19:06.879 it feels like there's a lot of risks here in 0:19:07.000 --> 0:19:11.480 terms of lack of disclosure, lack of liquidity, UM, lack 0:19:11.520 --> 0:19:14.000 of cash flow, and they've the company has said that 0:19:14.000 --> 0:19:16.439 it's not gonna be profitable for three years. Critically, in 0:19:16.440 --> 0:19:19.679 the bond perspectives, do they see the financials that I 0:19:19.680 --> 0:19:21.680 don't know? Because it's not it's not, we don't know. 0:19:23.119 --> 0:19:25.280 That's that's one of the reasons I think you take 0:19:25.440 --> 0:19:28.520 the you take the bond offering private because it's a 0:19:28.520 --> 0:19:31.280 a limited pool of investors, and I guess the finances 0:19:31.640 --> 0:19:34.320 are in a limited set of hands Joe as well. 0:19:34.359 --> 0:19:38.080 In theory that will be disclosed next year, right because 0:19:38.520 --> 0:19:42.199 Uber has to go public next year or otherwise. I 0:19:42.240 --> 0:19:45.119 believe a bunch of investors on the equity side have 0:19:45.280 --> 0:19:47.920 the option of cashing out on from the soft bank 0:19:48.240 --> 0:19:50.919 venture fund. Interesting. So here's the other interesting thing for me, 0:19:51.359 --> 0:19:55.080 walk us through covenant light and how much of an 0:19:55.080 --> 0:19:58.320 issue this is in fixed income right now. I'm talking 0:19:58.359 --> 0:20:00.639 about the quality of the debt that come to the market, 0:20:00.720 --> 0:20:03.239 the covenants that used to be attached to it and 0:20:03.280 --> 0:20:06.000 are no longer attached to it. Sure well, covenant are 0:20:06.200 --> 0:20:10.760 are never an issue until there's an issue, And unfortunately 0:20:10.840 --> 0:20:14.080 that's the way the market works. And what happens, is 0:20:14.320 --> 0:20:18.600 John Tucker, which marriage was he describing? There, take your pick, 0:20:18.960 --> 0:20:24.879 you got six? Did you join covenance to like the 0:20:24.880 --> 0:20:30.600 pre nup? Like the pre nups if the marriage. If 0:20:30.640 --> 0:20:33.399 the marriage doesn't go well, you can basically say you 0:20:33.440 --> 0:20:35.960 can have one of the covenants can be say the house. 0:20:36.520 --> 0:20:38.639 Or if the marriage doesn't go so well, you can 0:20:38.720 --> 0:20:42.360 basically say to them stop spending in the shops. When 0:20:42.359 --> 0:20:45.000 you start to get rid of those covenants, the agreement 0:20:45.040 --> 0:20:49.720 you have with the issue a little bit light. The 0:20:49.720 --> 0:20:51.920 only thing I would say, John, is with my covenants 0:20:51.960 --> 0:20:54.720 and I've been married for fifteen years, they never get amended, 0:20:55.720 --> 0:20:59.760 even even pretty tough covenant um. But you know the 0:21:00.000 --> 0:21:03.640 problem is with the with deals that are getting done 0:21:03.680 --> 0:21:06.600 today is that it's being done at a topy kind 0:21:06.640 --> 0:21:09.560 of part of the cycle, and so they're being done 0:21:09.800 --> 0:21:13.199 with light covenants, meaning a lot of room and capacity. 0:21:13.720 --> 0:21:16.600 And when the market turns down, those are the bond 0:21:16.600 --> 0:21:19.320 holders are gonna get that the hardest. First, is there 0:21:19.400 --> 0:21:21.960 a bet with a a private placement that they go 0:21:22.040 --> 0:21:24.119 to a premium if they come at par one hundred, 0:21:24.200 --> 0:21:27.280 that they trade positive or in a private placement, is 0:21:27.280 --> 0:21:31.000 there even price discovery one week, one quarter, one year on. 0:21:31.480 --> 0:21:33.640 It's pretty limited. Um. You know, when you have these 0:21:33.720 --> 0:21:37.160 darker markets, like a structured finance or a private placement, 0:21:37.440 --> 0:21:40.439 you wind up using third party data. Now, luckily here 0:21:40.480 --> 0:21:42.280 at Bloomberg we can use a b val curve or 0:21:42.280 --> 0:21:45.080 something to price and saying this is what you see 0:21:45.080 --> 0:21:50.160 how he gets the product place. Michael Bard doesn't do that. 0:21:50.440 --> 0:21:53.040 Did you do a b vail curve today? No? I 0:21:53.080 --> 0:21:56.840 did not. What is a b vail curve? Please be sure. 0:21:56.960 --> 0:21:59.920 We have curves here at Bloomberg which can show you 0:22:00.200 --> 0:22:03.080 add different readings what a bun should be praised at 0:22:03.800 --> 0:22:06.359 um and so you could use something like that to 0:22:06.440 --> 0:22:08.520 help you discover it. But you really never know because 0:22:08.560 --> 0:22:10.720 there's not a public market where you could just go 0:22:10.760 --> 0:22:12.840 and trade. Can you come back and be the official 0:22:12.880 --> 0:22:15.120 surveillance marriage counselor? I mean the idea that you've been 0:22:15.119 --> 0:22:18.240 married fifteen years is wonderfu We say, good morning, Mrs Levinson. 0:22:18.680 --> 0:22:20.639 It's really cool. I think that's what my career has 0:22:20.680 --> 0:22:23.960 been meant for. Okay, very good Our marriage counselor Joel 0:22:24.000 --> 0:22:29.000 Levinson with us this morning. Busy day for Primister May 0:22:29.080 --> 0:22:31.280 and Brussels today she'll be meeting with the EU Council 0:22:31.359 --> 0:22:34.399 President Donald Tusk. Then later this evening she'll addressed the 0:22:34.400 --> 0:22:38.280 blocks twenty seven leaders, who will then convene over dinner 0:22:38.640 --> 0:22:43.480 without her. Honestly, the way politics work in Brussels. Don't 0:22:43.520 --> 0:22:45.760 you love that? And our guests will explain that. Yeah, 0:22:45.800 --> 0:22:48.280 our guest is going to explain that. Now, the thoughtful 0:22:48.359 --> 0:22:52.719 and always outspoken Wolfgang mun Show. You wrote intelligence President Wolfgang, 0:22:53.080 --> 0:22:55.240 what is going on in Europe today? And how do 0:22:55.280 --> 0:22:59.639 you explain this process to people? Yeah, it's hard to 0:22:59.640 --> 0:23:03.560 explain European processes through people in in general. The reason 0:23:03.640 --> 0:23:06.480 the reason they're having dinner among themselves, it is because 0:23:06.520 --> 0:23:11.360 they need to they need to agree their own negotiating position. Now, 0:23:11.480 --> 0:23:14.080 we're not going to get any big breakthroughs on Brexit. 0:23:14.880 --> 0:23:17.760 The whole thing is stalled, but there is a is 0:23:17.800 --> 0:23:21.000 a ray of hope and at least they want to 0:23:21.000 --> 0:23:23.920 avoid this kind of disaster they had at the most 0:23:23.960 --> 0:23:27.440 recent summit in in in the Austrian city of Walsburg, 0:23:27.920 --> 0:23:32.760 where everyone left went home angry and and and resentful 0:23:32.800 --> 0:23:36.000 of each other. So so the purpose of this meeting 0:23:36.080 --> 0:23:39.080 is simply to get it over with and have another 0:23:39.119 --> 0:23:43.040